Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/96545
Authors: 
Heidhues, Paul
Melissas, Nicolas
Year of Publication: 
2010
Series/Report no.: 
ESMT Working Paper 10-007
Abstract: 
We study a two-player dynamic investment model with information externalities and provide necessary and sufficient conditions for a unique switching equilibrium. Within this setup, we ask whether policymakers should interfere when better informed agents make individual investment decisions. We find that when the public information is sufficiently high and a social planer therefore expects an investment boom, investments should be taxed. Conversely, any positive investment tax is suboptimally high if the public information is sufficiently unfavorable. We also show that an investment tax may increase overall investment activity.
Subjects: 
information externality
strategic waiting
delay
information cascade
investment boom
optimal taxation
JEL: 
D62
D83
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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